Netflix Customer Support on Throttling

Like Raven at A Netflix Odyssey, I'm sick of this topic, but after reading this e-mail I thought it was worth sharing. Take a close look at the last paragraph.

Hi Alan,

Thanks for your inquiry.

We appreciate you taking the time to provide us with your feedback and comments. I sincerely apologize for the difficulties you've experienced and have forwarded your feedback to the appropriate department. Please be assured that we are continually striving to improve our service.

I have provided below some details of how we ship and process DVDs so that you can understand how our service works at this time:

We receive rental returns Monday through Friday, except holidays. We process nearly 100% of returns the same day we receive them. When we check-in a return, an e-mail is automatically and promptly sent to you to let you know that we have received your DVD.

Our goal is to ship you the DVDs listed highest in your Queue. We try to ship you DVDs from the distribution center closest to you so that you get movies quickly. Often, on the same day that we receive a DVD from you, we will ship the next available DVD from your Queue. In certain instances, your next available DVD will not ship until the next business day following our receipt of your returned movie. This can occur, for example, when your top choices are not available to you from your closest distribution center or the number of shipments to be processed by the distribution center on that day has been exceeded. When this happens, your DVD will ship on the next business day and may come from an alternate distribution center.

In determining priority for shipping and inventory allocation, we give priority to those members who receive the fewest DVDs through our service. As a result, those members who receive the most movies may experience next-day shipping and receive movies lower in their Queue more often than our other members. By prioritizing in this way, we help assure a balanced experience for all our members. Those that rent a lot of movies get a great value and those with lighter viewing habits are able to count on our service to meet their limited needs.

If you have any further questions or concerns, please feel free to contact us.

Thanks,
[name withheld]
Netflix Customer Service .

I personally think this is a fair way of handling movie allocation when you have more than 2.5 milllion subscribers, but I'm not a heavy renter. What do you think?

Comments

I think MoviePass would be the greatest thing if you have a Blockbuster near you and like new releases. I don't have a BB, and I honestly can't stand new releases. I have 700 movies in my Netflix queue, but I can walk into a video store and look for a half hour and have trouble finding something worth renting.

Well, I like to let them age awhile. It is a reaction to all the times I've walked into a video store and saw valuable shelf space taken up by 50 copies of movies I had no interest in.

The good ones will still be around in a few years. I've got such a backlog of older movies that I want to see, I don't get around to the new ones. I'd probably have more of a problem with NF than I do if I rented a lot of new releases.

I stopped by a lemonade stand with a sign which read: "All the lemonade you can drink for a dime". I paid a dime and got a glass. When I finished it, I asked for another. The little boy running the stand said "you had a glass, right?". "Yes", I said. "You can't have any more", the boy said. "But you sign says 'All the lemonade you can drink for a dime'" The boy smiled and replied, "Well, that's all the lemonade you can drink for a dime."

Netflix advertises "Rent All the videos you want for $17.95/month". They don't say, "rent up to 15 videos a month".

I still think it is a fair deal, but just be honest about it. Publish your policies exactly.

I'm sure, if a boy selling lemonade in the above joke were real, the local bully would kick his arse.

People have commented that by throttling, Netflix is attempting to shift unprofitable customers to Blockbuster.

This begs the question of what Netflix's potential market size is. If you assume that 25% of the market is made up of people who like to rent 12+ DVDs per month, then Netflix is willing to give up a pretty big share of the total market. I've heard estimates that the online market will grow to around 12 Million over the next few years. Is Netflix really willing to ignore or piss off 3 Million potential customers? If so, and if you assume that Netflix will capture 50% of this smaller market, then Netflix will peak at around 4.5 Million users.

Second, Blockbuster has an inherent advantage with its stores. With each online DVD that it mails out, Blockbuster includes coupons that attempt to lure its online customers back into its stores. If these coupons are successful in getting people back into the store to make additional purchases, then Blockbuster has created a potentially lucruative secondary market that could help to offset losses from high use customers.

Also, it's surprising that neither Blockbuster nor Netflix has established any marketing partnerships. Why not partner with Pizza Hut, for example, whereby a Pizza Hut coupon is included with every DVD mailed out? Doing this could lead to an additional $0.05 of revenue for each DVD mailed, which could help to offet the costs from high use customers.

Netflix has no partners that I know of. Blockbuster has an inherent partnership with its stores.

This subject always garners a lot of feedback, even though it has been discussed ad naseum, which ought to make Netflix realize this is a major problem that should to be addressed in a way that does not alienate loyal customers who want a level playing field, and those new and infrequent customers Netflix so wants to appeal to by giving them priority. And it would seem that the problem would just get worse as they grow, so I wouldn't expect any improvement soon unless Netflix does something drastic ... and soon. It would seem to me that a first-come-first-served algorithm would be best: If they have 1,000 copies of "Shark Tale" it should go to the first 1,000 customers who request it by date-stamped request in their queue by distribution center. Discriminating by customer type forces frequent renters in big cities to rent older titles more often. Not fair.

Isn't the Netflix disc per month average something like 7. Also, I believe that a big segment of subscribers are early adopters that sought the service out and are into movies and watch a lot of them. As NF gains wider popularity it will attract the attention of more casual renters who just want the convenience the service provides.

pure speculation on my part, of course

The marketing angle was talked about before. I can't believe NF hasn't capitalized on the opportunity. There have to be companies that would pay to advertise to NF's subscribers.

"If you assume that 25% of the market is made up of people who like to rent 12+ DVDs per month, then Netflix is willing to give up a pretty big share of the total market."
Sorry, but you are assuming 25% without a basis. If this percentage is actually higher or lower for Netflix it may void your statement entirely.

"Second, Blockbuster has an inherent advantage with its stores."
That is certainly true. Yet, Netflix has an inherent advantage of providing films, old and/or foreign, that aren't found in your typical Blockbuster chain store. Which of these advantages matters most may be the big question.

"Also, it's surprising that neither Blockbuster nor Netflix has established any marketing partnerships. "
For Netflix, they have already promotioned upcoming film releases on their envelopes: ‘Garfield’, etc. I am unaware of Blockbuster doing the same.

I think I've seen that rate before when mailing CDs. 55 cents sounds like the standard 0.37 rate plus a 'non-machinable' surcharge (DVD's can't bend so they can't be sent through the automatic equipment). With the presort/bulk rate there will still be a discount on the 55 cents, but without calling the post office up I have no clue what the rate would turn out to be. Any postal experts here know the going rate for presort/bulk/non-machinable?

I just did some poking around on the USPS web site. According to the USPS web site, at first class/bulk/presort/non-machinable the rate is 40.7 cents per piece. At standard mail (instead of first class) the same rate is 30.8 cents per piece.

It gets a little tricky here though... I can clearly see postal barcodes beneath the address on my NF envelopes (which qualify for an automation discount), but that discount isn't available for non-machinable items (it's a discount for printing barcodes for the machines to use). The question arises, is NF taking it's chances sending DVD's through the machines anyway to get a cheaper rate (and use the bar codes), or does their software print the barcodes even though the post office doesn't use them. The rate for first class/presorted/bulk/automation varies by destination with a maximum rate of 30.9 cents per item. By standard mail (not first class) the rate is a max of 21.9 cents per item.

So Netflix could be paying anywhere between 21.9 each and 40.7 each depending on quality level and the non-machinable discount.

I am not a bulk mail expert (I only occasionally play one for my church - a very different situation), so do take this information with a truckload of salt.

The way I have received a couple DVD's, I'm almost positive that they are going thru the automated system. I once got a DVD that was apparently stuck on a conveyor or something, as there was a skid mark burned thru the paper and onto the disc (yes, it was unplayable).

To argue for or against throttling by making it an issue of 'fairness' is a fallacy in this context.

Netflix is not some sort of community lending library, where we are members of a DVD-sharing club. It is a business that offers to deliver a specific product in return for payment, and we are the customers of that business.

That means the habits of individual users are no business and of no consequence to any other customer. The users' habits should not be weighed against those of other customers in determing the quality of service they receive. Instead, the only measurement should be the agreement the individual customer entered into with the business.

And, the terms of the agreement are very simple. The customer pays a specified monthly amount. In return, Netflix provides unlimited access to a bank of DVDs.

The responsibility for making sure the agreement is financially viable rests squarely on the business. Anyone trying to sell a product or service has to decide beforehand at what price they can sell and still profit. That's only common sense

If Netflix cannot sustain its business within the terms of the agreement it makes with its customer, then the company should stop making those agreements. Period.

What is frustrating so many customers is that Neflix has discovered its business model is flawed and is using deceptive practices rather than openly making changes to the model.

I firmly believe the company is "throttling," in one of two ways: Either by deliberately slowling the in-processing of returned DVDs and slowing shipping on outdoing DVDs; or, more likely, by understocking DVDs and understaffing its distribution centers.

Rather than alienating so many previously loyal customers -- as so many Internet discussions clearly show -- why not just be forthright and make some changes?

The first thing Netflix should do is determine the fair market value of its service.

That means figuring out a dollar amount per DVD that customers would consider a good value, while still being profitable for the business.

Should that dollar amount be less than the cost of a rental in a brick-and-mortar store?

I say yes.

To begin with, costs are lower for Netflix. What the company pays in mailing expenses and distribution center operation is much less than the cost of maintaining thousands of stores and a huge retail labor force.

Second, while Netflix may market its service as one of convenience, the truth is that it's actually SLIGHTLY less convenient than store rental. Consider this:

* A video store customer can simply stop by on the way home from work to pick up a movie. A Netflix customer has to ship out a movie, then wait 3-5 days for a replacement to arrive in the mail.

* Video store customers can pick what they want off the shelf, while Netflix customers have to create and manage a queue.

* Even without late fees, Netflix customers may actually
have to return movies faster than store customers to keep the shipping process moving.

Third, by being a subscription service, Netflix has a more stable revenue base than rental stores. The company is going to receive the same amount each month from a customer, regardless of whether that customer rented one movie or 20.

I believe those factors combine to lower the per-DVD value of Netflix as compared to a brick-and-mortar store.

Of course, that lowering is offset somewhat by the company's wide selection of movies and DVDs.

So, what would I consider a fair per-DVD price? Say, 50-75 cents less than the average store rental. Maybe $2.50 or so.

Once Netflix has determined a fair market value, then it can revise its subscription plans to be more realistic. Instead of offering "unlimited" movies for a set price, it can offer a tiered service that allows customers to rent blocks of movies per month.

Someone who wants to rent only 12 movies per month would pay maybe $25 or $30, while someone who wants 40 a month would pay considerably more, up to $80 or so.

That would be a much more reasonable arrangement than the one many customers -- including myself -- are in now. Personally, I'm paying $50 and receiving an average of 15 movies per month. That, on a so-called "unlimited" plan.

There you have it, my own opinion, for whatever it is, or isn't, worth.

Two brief addendums:

As you all know, there seem to be an increasing number of complaints about the declining quality of Netflix service, i.e. unresponsiveness from customer service reps, the throttling issue, and high numbers of damaged/unplayable DVDs being shipping.

What if Netflix has purposely scaled back its physical operations in preparation for a switch to an emphasis on download rentals?

And,

On the subject of Blockbuster online, I recently opened an account there to "supplement" my Netflix account. It usually takes at least one day longer for a movie to reach me from Blockbuster's distribution center, but the company more than makes up for it by shipping my movies early. In other words, I drop one off at the post office, it gets scanned in when the mail is sorted, and Blockbuster ships the next one immediately before the first even arrives at the distribution center. I assume Blockbuster has some sort of arrangement for real-time or nearly real-time tracking of the DVDs.

I gotta say, I have been annoyed occasionally with the wait between shipping, but it happens in a frequncy that is very few and far between. I almost always get my movies in 2-3 days after returning a DVD. I think that that is excellent service. I looked back at my annual rental this past week. I got over 200 movies in 12 months, that's over 16 movies a month and have had nothing but excellent service. 16 movies ends up being about $1.25 per rental. I probably would have had a higher number of rentals, butI do take a couple fo vacations each year. Even though I tend to be skeptical of "faceless" corporations, I am extremely pleased with Netflix and think that they are more than fair and an excellent value!

rab,
If Netflix is not living up to its promise, and is not a convenience compared to your corner DVD store, what's stopping you from leaving them? Market place and all that...
Your financial analysis is very simplistic. Their customer acquisition cost something like $35 which is very significant.

I like Netflix because they accept checks, they have movies that my local blockbuster wouldn't dream of carrying, and I don't even have to leave the house. Throttling evens the playing field. Waiting a day to ship your next movie DOES NOT mean rentals are limited.

"That would be a much more reasonable arrangement than the one many customers -- including myself -- are in now. Personally, I'm paying $50 and receiving an average of 15 movies per month. That, on a so-called "unlimited" plan."

If you're paying $50, as I am, you're on the 8 out plan. Are you telling me you get less than one full turnaround a month? I don't see how that's possible for anyone, no matter what podunct town they live in. IMHO, If you're only watching 15 movies, you should move down to the 3 at a time plan, 5 tops. I'm paying $50 a month and I get about 15 movies a WEEK.

@ Speedy

"What I don't get is why every, now and then, Netflix will skip down my queue to the # 2 or # 3 slot and mail THAT DVD out, when the disc at the top of my queue IS in fact listed as "Available Now".

They did that today. They skipped 1 and 2 (both "Available Now") and sent me the third disc in my queue."

I could be wrong, but I believe this happens because even though your queue says "available now" the actual inventory fluctuates faster than your queue can show. I don't think you're doing anything wrong, it's just the luck of the draw at the last minute before shipment.

Every once in a while I will have a movie in short wait at the top of the cue that will unexpectedly ship even though the status never changes to available now.

I was a little surprised about that myself, but I decided to check because my turn around had become glacially slow. It's not unusual for me to drop off 8 discs at the main post office (and no, not a podunk town)on a Monday and not have the last of them logged in as received at Netflix until the following week. I don't believe it to be a postal issue, either, because I found no problems when I checked with USPS about delivery times on outgoing mail, and because my movies rarely take more than two days to arrive once Netflix ships them.

I counted all the discs I'd rented since subscribing, divided that by the number of months I'd been a member and came up with 16 (I erred earlier when I said 15). When I did a month by month check, I found some months that had been as low as 12 and one month with a high of 21. Interestingly enough, when I called Netflix to complain, the customer service rep insisted my monthly average was 21 because "our system automatically figures it." Even though I had requested and received a current copy of my entire rental history and was able to provide her with specific numbers, her response continued to be, "well, sir, that's not what my system is showing me." She declined to actually do an item by item count while I was on the phone with her.

If you're getting 15 a week, that's great, and I envy you. Trust me, if I was getting just 8 a week, I'd be a happy little camper.

Man Rab, it sounds like you're stuck with a pretty crappy DC wherever you are. That's insane that you can only get a single turnaround in 30 days.

I have been experiencing "next day" delays mainly on Mondays, which doesn't surprise me too much with their mass influx of new customers. Fortunately, I try to get a big batch of movies sent in either Friday or Saturday so they receive them on Monday so even if I get the next day delay, I still get the New Releases. As for the midweek, I dropped off 5 movies at the local Post Office yesterday and they were shown as received by 8am today, with all 5 queue spots getting filled and reshipped today.

I remember talking to a programmer for Netflix about 4 years ago. Netflix had 2 catagories, sheep and pigs. I guess they call it throttling here. It is absolutley proposterous to think that 3 movies a week is heavy usage. Sometimes, I watch 3 movies in one night. 2 is very common. I have complained about shipping times on several occasions and now I will just quit the service that advertises unlimited rentals. I was getting 10 movies per week from Blockbuster. I will return to them.

I was a member for Netflix near the beginning, then ended, then picked up again last summer. When the price was raised, I quit. Now that the price is back down to an even lower $18, I picked it up again at a new address. Personally, I think where you are is important to them, too. I used to get DVDs the very next day after they shipped to me. Now, it's either the next day or 2 days after. THAT, I will blame on the post office, because Netflix has been sending my DVDs out the same day they get them. I'm already at 15 DVDs for the month and my first month doesn't end until the 24th. I lived in Concord, CA and now in Berkeley, CA and get all my DVDs from San Jose, CA which is right near here and I think also where they're based (since the code is 01 - SJ). I feel my good luck is just because I'm near what is probably the FIRST distribution center and probably has the largest selection (though I hate they don't operate on Sat.). I think their main concern should be increasing their quantities at their distribution centers. I tried Blockbuster and was horrified - I received 1 wrong DVD, 1 scratched (and unplayable) DVD, and most were sent from their Sacramento center instead of San Jose so they took longer to get here. I'm sticking with Netflix and even if I only manage 15 to 20 a month, I'll be happy. Sure beats having to spend a bunch of time driving to an actual rental store. Besides, Netflix has the previews now for the movies, which I LOVE! And btw, does anyone else think Netflix REALLY needs to redesign their envelopes? Sometimes, I get them and the adhesive part is starting to tear off!

cashforflow said:
"Netflix is essentially ridding itself of these heavy users and sending them to competitors."

No netflix is making a a very bad reputation for itself as a slow provider who is pulling worse stuff than BB ever pulled. Not jsut heavy users but average users are abuzz about the drastic slowdown.

the selection is also worse than BB. Just checked netflix on a few movies. They don't even have "Toy Story" and BB does. Their selection, service and price is now WORSE than BB. BB can wait them out over the next year, the trend and growing satisfaction is all in their favor.

Trying to shedg "bad" customers got Best Buy afull article in the WSJ last month I expct this type of thing to trash Netflix's reputation and goodwill as well.

As far as I can tell dividing their customers into "pigs" and "sheep" is going to result in nasty blowback.

"No netflix is making a a very bad reputation for itself as a slow provider who is pulling worse stuff than BB ever pulled. "

I don't see the purpose in appeasing customers you can't profit from. Blockbuster may be willing to send their subscribers essentially a check every month, but that doesn't mean it's the prudent thing to do.

"the selection is also worse than BB. Just checked netflix on a few movies. They don't even have "Toy Story" and BB does. "

Netflix has Toy Story and Toy Story 2. I don't understand your statement.

"I don't see the purpose in appeasing customers you can't profit from"

Netflix the stock is driven by growth, not profits (momentum, not value). I can just imagine next quarter's conference call. Hastings will say something like, "Yeah, our churn is higher than expected and we missed our subscriber growth estimates, but that's okay because we shed the unprofitable users."

Throttling seems like a stupid way to shave a few million in profits. Angry customers result in increased calls to customer service, bad PR, and loss of goodwill. In addition, one class action lawsuit is all it will take to wipe out all of the "savings" that Netflix is reaping from the process.

This makes me sick. I have been with netflix for years. They have lost another customer. But where to go? Walmart is pure evil and blockbuster edits the films. Well, all good things come to an end. I guess.

"Netflix the stock is driven by growth, not profits (momentum, not value). "
There isn't a private company in financial history that did not have to make profits unless they received public assistance. Profits are the only thing that matter in business. Public relations with the stock market are secondary as is everything else.

"If you don't see the purpose in appeasing customers that you can't profit from, then why attract them in the first place with the false lure of an unlimited plan."
That's your subjective opinion. It is legally an 'unlimited plan.' I suggest moving to a competitor if you are unhappy with Netflix.

"Throttling seems like a stupid way to shave a few million in profits."
Do you not want an additional $1 Million in profits? I'm sure Netflix does. The company has no interest in giving a 'free lunch' as Blockbuster and Wal-Mart are doing. Enjoy it while it lasts.

"It seems like whatever Netflix does you'll defend it. Netflix can do no wrong in your book."
Your statements are generally wrong about any business concerning profits and motives. This is not personal - just the business world. I haven't said it's wrong or right, but it is legal.

Rest easy friend. Name calling can't hurt if you don't let it, and can actually be a source of amusement - it's just so juvenile.

Let them think what they want. We both know they're wrong, but almost by definition they're irrational (a company doesn't need to be profitable!?!). You can't convince them with logic and reason, so let them think what they want.

sorry bub but your way off. you still dont understand the problem. its not that we dont want them to make a profit. it is that they are using unscrupulous business tactics. its a classic bait and switch with a bit of discrimination thrown in. Netflix lies to get new members by claiming it is a unlimited service but it actually takes steps to limit the amount a customer can have. Not only that but they show favoritism to a "class" of customer even though all pay the same with the intention of getting the same service. do you get it yet?

I do get it - I just disagree with your assumptions. I don't agree that the priority appoach is a penalty for high volume renters. I believe it serves to promote equality of service.

Priority in shipping helps to bring low volume renters closer to the average number of shipments (and high volume renters, for that matter). And low volume renters are, after all, paying more per disk rented - it's fair that they should get first pick.

Is 750K per month really worth the trouble? If Netflix gets hit with a class action lawsuit, it will easily cost $10 Million. The suit will never go to trial. Netflix will end up settling for millions, paying millions more in attorney fees, and have to issue rebates.

Very poor strategy.

The problem is that Netflix is a 1 dimensional company. Unlike Blockbuster, it has no other means to monetize its customer base.

wrong again. lets take it slow, ok?
#1 lets get this out in the open. the unlimited service is not unlimited. they actually limit the service which is exactly opposite of what they are advertising. they are not immediately going to the next available movie in the queue.
#2 discriminating against a portion of the customer base because they use the service as advertised it unethical. the service does not state that the less a customer uses the service the better the service will be.

so here we are. not only does the customer who uses the service as it was advertised get denied the movie of their choice but they are denied the prompt delivery of any of the other choices. the service says nothing about weighing your choices based on how popular your taste compared to how often you wish to use the service.

but here i am trying to use logic and reason on a Netfix employee. Sheesh! How much do they pay you for this?